The Zacks Analyst Blog Highlights: Netflix, Amazon, Comcast, WellPoint and Aetna

Zacks

For Immediate Release
 
Chicago, IL – April 22, 2014 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Netflix (NFLX-Free Report), Amazon (AMZN-Free Report), Comcast (CMCSA-Free Report), WellPoint Inc (WLP-Free Report) and Aetna Inc (AET-Free Report).
 
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Here are highlights from Monday’s Analyst Blog:

Netflix Again Beats Estimates, Shares Rewarded
 
Internet TV network Netflix (NFLX-Free Report) posted Q1 earnings results after the bell Monday, and once again the company posted a positive surprise: 86 cents per share beat the Zacks Consensus Estimate of 83 cents on in-line revenues of $1.27 billion in the quarter. Neither number is much of a surprise. Netflix always beats earnings estimates, or at least it has over the past 6 quarters -- often soundly.
 
After-market traders are putting Netflix back on the momentum track after the earnings announcement (up 6.6% in the late market), and this may be attributed to a high-than-forecast new subscriber growth number: between domestic and international subscribers, Netflix hit 4 million in Q1, above the projected 3.85 million. This figure is even more meaningful when one considers competitors in the market Netflix had not long ago controlled exclusively; these growth numbers suggest that at this time, it doesn't seem like a company like Amazon (AMZN-Free Report) has taken meaningful share from Netflix's subscriber base.
 
The company also announced a price increase for new subscribers, amounts of which will vary based on region but generally be in the $1-2 category. The last time Netflix announced a price increase on its subscribers, NFLX stock got hammered. But this moderated increase is providing a shock to no one's system. In fact, it may have even been anticipated, as Netflix earlier this month agreed to pay a fee to Comcast (CMCSA-Free Report) to increase Netflix service speeds to Comcast subscribers. How high this fee will be was not announced.
 
Netflix shares are rebounding from a major sell-off of momentum stocks in recent weeks -- shares had been down 24% from their all-time highs reached on March 4 of this year. Prior to the earnings announcement, Netflix was trading down 5.35% year-to-date, though year over year NFLX stock is up 113%.
 
The company retains its Zacks Rank #1 (Strong Buy) status, and has been one of the best-performing stocks of the Zacks Focus List since being added in March of 2013. And with now 48 million subscribers worldwide, CEO Reed Hastings' company appears to still be in the veritable cat-bird seat. Whether the momentum-trade rollercoaster will yank the share price this way and that as we continue through heavier market volatility than we've seen in awhile remains to be seen, but Q1 was yet another good earnings quarter for Netflix.
 
2 Obamacare Insurance Picks

President Obama has said that eight million people have opted for Obamacare during its very first year. This statement was made just a few days before enrollment for the year for the Patient Protection and Affordable Care Act (:ACA) comes to a close.

Enrollment Exceeds Estimates

At this point, there is no denying the fact that the ACA as a whole is an unqualified success.  The enrollment figure of eight million exceeds the original Congressional Budget Office (CBO) estimate by one million. The CBO estimate was made before the exchange was hampered by computer errors. In fact, the CBO had reduced the estimate to 6 million signups in February.

Speaking at a news conference, President Obama said: “We’ve got a sizeable part of the U.S. population now that are -- for the first time, in many cases -- in the position to enjoy the financial security of health insurance.”

Balancing Out Costs

The President said 35% of those who have signed up are below the ages of 35. This implies that enrollments for young adults and children are 4% higher than on March 1st. This figure is particularly significant because it improves the odds for insurers. Insurance companies want more young and (therefore) healthy people to sign up. This would cover the costs and risk involved with providing coverage to the old and the sick.

At the same time, it is important to note that this figure includes those children below the age of eighteen who are still covered by their parents’ plans. What is crucial are the numbers for the young adult age bracket which will really make a difference, since they will pay for their own plans.

Effect on Premiums

The increase in the number of young individuals signing up could help to keep costs down, especially if most are healthy. This was the view expressed by an important member of the nonprofit Kaiser Family Foundation, based out of Menlo Park, California.

However, insurance commissioner for North Dakota, Adam Hamm, has said that an increase in the enrollment of younger individuals does not guarantee a reduction in rates across the board. What could be crucial is not just the age but also the health of those signing up.

Insurers’ Prospects Brighten

Despite certain misgivings, the increase in the number of enrollments is good news for insurers. Allowing for the finer details of the numbers, the rise in the number of younger people is particularly significant. Below we present two insurance stocks which possess the potential to grow appreciably in the new environment, each of which also has a good Zacks Rank:

WellPoint Inc

WellPoint Inc (WLP-Free Report) is our first pick. In its latest guidance on 2014, published on March 21, 2014, the company stated that it expects full-year 2014 net income to exceed $8.20 per share, higher than the previous guidance of over $8.00 per share.  The outlook was raised on the back of projected growth of 1–1.3 million or 3–4% in new medical members, 4% in operating revenue and 5% operating gain.

WellPoint has been undertaking a number of marketing and enrolment initiatives that are expected to boost memberships in 2014. Moreover, the company’s core business enhancement initiatives are also quite impressive and position the company to capitalize on core growth opportunities.

WellPoint holds a Zacks Rank #2 (Buy) and has expected earnings growth of 8.3% for the next financial year. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 10.94.

Aetna Inc

Next up we have Aetna Inc (AET-Free Report). The medical insurance major should benefit from growth in the Medicaid and Medicare segments, its fast-growing health services segment and an expanding provider network.

Meanwhile, Aetna is witnessing earnings accretion from the acquisition of Coventry. The Coventry takeover has enabled the company to position itself in the fast-growing government businesses. The company expects revenues of $200 million in 2014 which is expected to increase to $400 million in 2015.

Currently the company holds a Zacks Rank #2 (Buy) and has expected earnings growth of 11.20% for the next financial year. It has a P/E (F1) of 10.58.

The success of Obamacare means that the scenario is now increasingly in favor of insurers. Given their past performance and the proven ability to deal with legislative changes, these choices would make good additions to your portfolio.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
 
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